Accumulate Bank of Baroda; target of Rs 850: PLilladher

Prabhudas Lilladher is bullish on Bank of Baroda (BOB) and has recommended accumulate rating on the stock with a target of Rs 850 in its February 04, 2013 research report.

“Bank of Baroda, slippages inched up to Rs20bn (2.7%) in line with management guidance but muted outlook for the next two quarters was a negative. Slippages included 2-3 lumpy accounts with the largest exposure of Rs3bn (oil exploration). Restructuring at Rs16bn was on expected lines but BOB has not included its Suzlon exposure in Q3. Hence, restructuring will remain elevated in Q4FY13.”
 
“Margins came off by ~6bps QoQ led by a fall in domestic margins and also a mix shift to higher overseas book. Domestic margins have been impacted due to interest reversals but ~60bps of margin decline in the last 4-5 quarters has been severe and easing rate cycle will further pressure margins (2) Core fee income growth, which has been holding up relatively better for BOB, is coming off sharply like most peer banks (8% down QoQ) (3) Loan book expansion also remains largely overseas led (domestic book flat in 9M13) adding further pressure to margins.”

“BOB reported net profit of Rs10.1bn lower than our estimates despite just 17% tax rate led by a miss on most operating metrics (NI, fees) and higher-than-expected credit costs. Core operating metrics (fees, growth) which has been holding better than peers has disappointed and management.s muted guidance on asset quality will remain an overhang. We cut our estimates by ~4‐6% for FY13/14 and now expect ROEs of ~16%, just marginally better than peers like Union/BOI. Lower ROEs + asset quality uncertainty will weigh on near‐term stock performance. We maintain accumulate. but valuations of <1x FY14 book restrict us from downgrading BOB,” says Prabhudas Lilladher research report.

FIIs holding more than 30% in Indian cos

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